FTC and Justice Department Find Some IPAs Go Too Far in Bargaining

Federal law restricts the leverage given to negotiators for physician associations. Plans should know what is, and what is not, legal.

John W. Jones

The use of consultants by physician groups, such as IPAs, is nothing new. In 1996, the Department of Justice and Federal Trade Commission issued their revised Statements of Antitrust Enforcement Policy in Health Care, outlining how such doctor networks should conduct contract negotiations.

What is new — and it's something that health plans should be aware of — is that Uncle Sam has lately shown more inclination to enforce antitrust law. For instance, recently, the Federal Trade Commission brought enforcement actions against some physician IPAs, alleging that the networks have been violating the antitrust laws in their contract negotiations with HMOs.

In May 2002, two Denver-area physician groups agreed to settle with the FTC over charges that the organizations and their members entered into agreements to fix fees and to refuse to deal with payers except on collectively agreed-upon terms. The complaints also alleged that deficient contract offers were not even relayed to the doctors and that the physician leaders and the messenger — often a consultant, but not always — advised members to terminate or threaten termination of their individual health plan agreements in an effort to pressure plans to offer new contracts with higher fees.

Simply put, it is illegal for physicians to get together and threaten to terminate their agreement with health plans as a way of getting more pay.

Proposed settlement

Also, in August 2002, the FTC announced a proposed settlement involving eight Denver-area obstetrical and gynecological groups, along with their nonphysician agent. The FTC charged that the consultant, termed a "messenger" in the applicable federal law, refused to tell the physicians about contract terms if the consultant considered those terms deficient; the physicians collectively demanded and received more advantageous fees and other terms than each of the physicians could have obtained individually; the consultant and managers of the physician groups convinced the physicians to terminate their relationships with other IPAs to enhance their bargaining strength; and the consultant advised the physicians to terminate, or threaten to terminate, their pre-existing individual contract with payers, thereby pressuring payers to offer new contracts with higher prices.

Just what can physician groups do?

These examples show what physician groups may not do in contract negotiations. But what can they do? When the Department of Justice and FTC issued their revised Statements of Antitrust Enforcement Policy in Health Care in 1996, they essentially outlined how the government should analyze certain health care antitrust issues. Statement 8, regarding physician network joint ventures, and Statement 9, concerning networks that include multispecialty providers, are crucial in analyzing the antitrust implications of physician networks.

Statement 9 provides that networks that are not substantially integrated can use a "messenger model" arrangement to facilitate their individual contract negotiations with health plans and avoid price fixing. Statement 9 provides valuable guidance on the permitted actions of third party messengers, or consultants, in contract negotiations with health plans. Statement 9 provides that:

The messenger, not otherwise affiliated with the network, may obtain from each participating physician a fee schedule or conversion factor that represents the minimum payment that the participating physician will accept from a payer.

The messenger is authorized to contract on the participating physicians' behalf with payers offering prices at this level or higher.

The messenger may convey to the participating physician price offers that do not meet the authorized fee amount.

For a specified period of time, the messenger also may be authorized to bind the participating physician to any contract offers with prices equal to, or better than, those in a contract that the participating physician has already approved.

The messenger may also aggregate the information of various participants and develop a schedule that can be presented to a payer that shows the percentages of participating physicians in the network who have authorized contracts at various levels.

Importantly, the messenger may neither negotiate pricing terms with a payer nor share pricing information with the participating physician.

In February 2002, the FTC issued a favorable advisory opinion to MedSouth, an IPA located in Denver.

Under MedSouth's proposed program, the IPA would seek to negotiate price and other contract terms with payers on behalf of its physician members and would use a consultant to develop fee proposals for use in contract negotiations.

The consultant would not disclose competitively sensitive information received from network physicians to other physicians in the network. Importantly, the IPA would be a nonexclusive network that would not preclude physicians from participating in other physician contracting organizations or from contracting with payers individually.

Additionally, the physician members would not share pricing information with one another and would be prohibited from agreeing to collectively contract only through MedSouth. Finally, MedSouth would not state or suggest to payers that unless the payer reaches agreement with the IPA, its physicians would not participate in the payer's plan.

The FTC concluded that it would not challenge implementation of the program if the physician members were, in fact, willing to deal individually on competitive terms with payers who did not wish to contract with the IPA and the number of physicians participating in the group would be reduced, as described by MedSouth.

Valuable insight

The recent enforcement actions provide valuable insight into the type of conduct that physician networks and their messengers may attempt to engage in when negotiating provider agreements with health plans. Accordingly, when negotiating agreements with physician networks, health plans should be aware that the following conduct on the part of physician networks has been viewed by the FTC and DOJ as anticompetitive:

Having a fee schedule for the network or price ranges that a health plan must meet in order to contract with the network.

Negotiating price or price-related terms with health plans.

Allowing the messenger to unilaterally accept or reject contract offers based on price or price-related terms or to fail to relay offers to the participating physicians.

Restricting the participating physicians' ability to negotiate or contract individually with health plans.

Inducing participating physicians to terminate or threaten to terminate their existing agreements with health plans.

Implementing a system under which the participating physicians mutually agree to standing offers that will be submitted to health plans or to offers that will be accepted by the participants.

Health plans can level the playing field by talking with physician networks and their messengers about the antitrust implications of engaging in such conduct.

John W. Jones is a member of the Health Care Services Group at Pepper Hamilton in Philadelphia. He can be reached at (215) 981-4706 or jonesj@pepperlaw.com.